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Non-labour costs set to rise across sectors 

More than two-thirds of Fidelity International analysts expect non-labour costs to rise over the next six months, as higher demand and supply chain bottlenecks drive up raw material prices. 

Energy sector projects are particularly exposed to rising costs. “Steel and lumber prices are at record highs in the US and at elevated levels elsewhere as government stimulus drives strong end-market demand,” reports one energy analyst covering oil and gas companies in the Asia Pacific region. 

Industrials companies are also vulnerable to rising commodity prices. “Concerns about raw material inflation and supply chain bottlenecks (especially for semiconductors) have certainly increased,” reports one industrials analyst covering the European capital goods sub-sector. 

Consumer analysts expect higher labour costs

Many analysts also expect labour costs to rise, albeit a lower proportion than those expecting an increase in non-labour costs. Continued labour shortages partly explain this, with government stimulus and concerns about contracting Covid-19 keeping some energy and mining sector employees at home. 

Labour costs have also risen in the energy sector as workers have sought jobs in other industries, with one analyst covering North America pointing to “truck drivers who used to work in oil but now drive trucks for online delivery companies”. 

Consumer discretionary analysts see a similar trend and 70 per cent think that labour costs will rise over the next six months. “An increase in government benefits during the pandemic has decreased the urgency for some workers to return to the labour force”, reports one analyst covering North American restaurants, consumer products and gaming. 

Political pressure to increase minimum wages is also pushing up expectations of labour costs in the future, after President Joe Biden signed an executive order in April that requires federal contractors to pay at least $15 an hour. At the same time, the number of hours worked is rising as economies reopen and capacity in shops returns to normal. 

Companies’ costs could remain elevated 

Both labour and non-labour costs could keep rising throughout the rest of the year. “On recent earnings calls, pretty much every US retailer reported that wage pressures were expected to increase into the second half of 2021,” reports one consumer discretionary analyst covering North American retail. And although supply chain bottlenecks and congestion at ports could improve modestly, the cost of shipping freight is expected to remain high. Inflationary pressures are therefore likely to persist into the summer and beyond. 


Terry Raven

Terry Raven

Director, European Equities

Gita Bal

Gita Bal

Global Head of Research, Fixed Income